“Come see what an uninsurable property looks like,” Mark Christiansen laughed. The 37-year-old graphic artist and his wife, Amy Lodato, were in a mad scramble to get insurance for their 1940 Russo-style duplex in San Francisco’s Lone Mountain neighborhood.

Uninsurable? Images run rampant through my mind: A mildewed shack, teeming with rats, perched atop a cliff. A burned-out hovel inhabited by squatters on the edge of a brush-fire zone. A straw-bale house in a flood zone.

What I don’t imagine is the property I saw upon arriving at Christiansen and Lodato’s home one blustery afternoon: well-maintained old construction and finely crafted remodeled details, gleaming hardwood floors, new paint and a pristine backyard. As carefully groomed as a Pacific Heights poodle, this house embodied that old real estate bromide “pride in ownership.”

It may seem strange, but this is exactly what uninsurable property looks like in 2004, when homeowner’s insurance in California is fast becoming a nightmare of Kafka-esque proportions. Since the rise of exorbitant mold claims, Sept. 11’s blow to the insurance industry, the recent erosion of the stock market, and the fact that homeowner’s insurance has been a relatively unprofitable business for some time, insurance companies are busy tightening their belts – generally around the throats of unsuspecting consumers.

Like so many stories of first-time homeowners in San Francisco, Christiansen and Lodato’s started with a feeling of good fortune. They bought the building in 1999, when anyone who could still afford to live in San Francisco at all felt lucky. Their plan was to buy the duplex, condo-ize it and sell the upper unit to help subsidize their occupancy of the lower one, a two-bedroom, one-bath apartment on a busy street. Eager to protect themselves from any unpredictable catastrophes, the couple bought a complete insurance package from USAA Casualty Insurance Co. with water-damage and liability insurance, as well as basic fire coverage.

Two and a half years later, on the verge of condo-izing, they hired a roofing company to resurface the deck on the upper unit, which seemed to have leaked water into the bedroom of their daughter, Chloe, below. But when water was sheeting down the walls again after a storm, the couple filed a claim with their insurance company and called the roofing company to return to redo the work, which carried a five-year warranty.

Soon after, their upstairs tenant fell asleep with the shower running, flooding the bathroom and saturating some of the walls downstairs. The next day, a claims adjuster came to check on the work that was already being done on the initial leak and ended up writing up a second claim for the new damage. He also asked Christiansen and Lodato to have part of a wall removed to see how extensive the damage was; the owners found little dots of mildew on the wood.

Had Christiansen and Lodato known anything about the current workings of homeowner’s insurance, they would have known that their house was already marked by bad insurance karma. Because leaks can lead to mold and mold can lead to multimillion-dollar claims and lawsuits, some insurance companies now simply drop any clients who make a water claim of any kind. But making two water claims within a month and finding mold – well, this policy was fast becoming an insurer’s black hole.

“At first, they’d told us it would be about an $1,800 job to sand down the wet beams and put in new drywall,” said Christiansen. “But it seemed like a switch flipped when they saw the mold.”

At that time, the couple were still hoping to recover their $1,000 deductible from one or both of the guilty parties (their tenant and the roofing company), so they were disappointed to learn from the adjuster that, as landlords, they were responsible for keeping the drains clear enough that a bathtub or shower could run in perpetuity. At that time, however, the adjuster still gave the couple reason to believe they had a case against the roofers.

The insurance company aggressively went about remediating the small patch of mold Christiansen and Lodato had discovered. Learning that the construction would continue for at least six to eight weeks to accommodate the required three mold inspections, the couple found a furnished apartment for $4,000, to be paid for by the insurance company.

Again, Christiansen and Lodato didn’t fully understand how this kind of expenditure might damage their ability to get insurance in the future. But, looking back, Christiansen now realizes the insurance company must have been racking up the bills. The construction company had turned the apartment into a hazmat site, sealing the back of the house in plastic, creating a “clean room” for workers to change in and out of “contaminated” clothes, running negative air machines 24 hours a day. In retrospect, the couple seem to think many of the precautions were overkill, to protect the insurer’s liability. “It was insane,” Lodato said. “They were all wearing hazmat suits and using [high-efficiency particulate-air vacuum cleaners] to clean all of our belongings that didn’t have to be discarded. We had to throw everything away that was soft – Chloe’s toys, mattresses, everything.”

While their daughter’s room was being “fixed,” heavy rains led to more leaks and the contractor discovered that water was coming in through nail holes behind the metal siding; the adjuster wrote this up as a third claim. Still worrying about an additional $1,000 deductible, Christiansen and Lodato argued that it was really the same claim, which had been mishandled.

“Up until then, [the adjuster] had been very friendly – and, suddenly, he exploded, ‘How would you like to lose your insurance?'” said Christiansen. “Basically, he threatened us with exactly what happened to us.”

Nine months later, after putting the upper unit on the market, the couple accepted an offer from a buyer, but she soon discovered she couldn’t get insurance to satisfy her loan. When Christiansen called the couple’s USAA agent, he was told he and his wife were being blacklisted and that their claims history was so egregious that no “regular” insurance company would work with them or their building. When Christiansen asked why no one had ever told him and his wife they were jeopardizing coverage by making too many claims, another USAA employee told him it’s considered a “conflict of interest” to caution clients about their claims.

“It was like trying to get health insurance if you have a really serious illness,” said Christiansen. “No one would consider us.”

The couple applied to the California Fair Access to Insurance Requirements (FAIR) program, a federally funded, industry-financed plan originally created for certain homes deemed uninsurable after the Watts riots. They also tried to get a temporary policy with a “high risk” company called Admiral, which would cost $3,000 for a single month of basic fire insurance. When neither policy came through in time, they ended up releasing their buyer from escrow.

Eventually they finally got basic fire insurance from FAIR. (Other homeowners in similar predicaments have bought liability insurance from Lloyds of London, a company that typically insures high-risk properties such as oil tankers.) In retrospect, Christiansen says had he known then what he knows now, he would never have made a claim in the first place. “We could have dealt with it on our own,” he said. “We just assumed that that was why we were paying for insurance.”

“It’s frustrating,” added Lodato. “You have to buy it, but you’re not supposed to use it.”

Does their experience seem like an anomaly? Not if the reaction of Nanci Kramer, a spokeswoman for the California Department of Insurance, gives any indication. When I begin to tell her about this couple who have been deemed uninsurable, she finishes my sentence: “Don’t tell me – they had water coverage and dared to use it. The nerve, huh?”

Kramer has been ringing the alarm bell about trends in homeowner’s insurance for some time, adding that the industry is now “trending toward a crisis.” The state Department of Insurance has been receiving complaints from outraged consumers, as well as reports from real estate agents about homes falling out of escrow. In the past year, according to Kramer, applications for the FAIR plan have soared from an average of 100 a week to 300 a day.

“Water claims are the scarlet letter of insurance,” she said. But though water claims are the most common route by which people turn themselves into modern-day Hester Prynnes of homeowner’s insurance, the practice of blacklisting homes and homeowners can happen in many ways.

In part, it’s because of the growing use of a database called CLUE (Claims Loss Underwriting Exchange), originally used as an antifraud tool to help insurance companies spot people who file identical claims with multiple companies. Now, however, it’s commonly used to gauge potential risk. Owned by ChoicePoint, a publicly traded credit-history-reporting company, CLUE compiles information about the insurance history of buildings and their owners. CLUE has effectively mechanized the insuring process, leading some homeowners to lose their insurance over trifling or even nonexistent claims.

Kramer recalls one first-time homeowner who was turned down by 45 insurance companies before calling the Department of Insurance for help.

“We asked him if he’d gotten a copy of his CLUE report, and he’d never heard of it,” Kramer said. “How are you supposed to inquire about something that you don’t know exists?”

When the man got his report, he discovered he had a record as having made a water claim because there had been a claim on the building where he’d previously lived as a renter.

Similarly absurd mistakes have occurred when people have simply called their agent to inquire about a claim and the agent records the inquiry as a claim in the CLUE database. This practice came under fire at hearings spearheaded by state Sen. Jackie Speier, (D-Hillsborough), who chairs the California state Senate’s Committee on Insurance. During the hearing, representatives of the insurance industry claimed – much to the frustration of industry watchdogs – that California law requires them to record any inquiry as if it is a claim.

“Many carriers are changing the standard that they apply to the customer, and it’s catching people unaware,” said Brian Perkins, the committee’s staff director. “The most outraged people we see are people who have been paying their premiums for 10, 15 years, and they suddenly find themselves unwanted.”

To illustrate the problem, Perkins told me about a man who lost his insurance after simply inquiring whether the loss of a wedding ring would be covered under the clause about “mysterious disappearances” on his personal-property coverage. “He never filed a claim and never thought about it again, until he heard that he’d been dropped.”

Perkins said the insurance industry’s trend toward “cherry picking” only low-risk clients has come about from a number of causes.

“The cost of reinsurance for homeowners is higher, and so companies are passing along costs to consumers,” he said. “Construction costs are also higher. Some companies lost a lot of money in last few years in the stock market. Some companies were using [their profits in] the stock market to cross-subsidize homeowner’s insurance, which in general hasn’t been a very profitable business.”

No one is disputing the fact that business has been lousy for homeowner’s insurance. In Texas, where there was a $32 million mold-related lawsuit, Farmers, State Farm and Allstate, three of the state’s biggest insurers, have stopped writing new policies. State Farm has now widened its moratorium to include California as well.

In 2002, The Wall Street Journal reported that the insurance industry had losses of $9 billion on homeowner’s insurance in 2001, and, according to the Foundation for Taxpayer and Consumer Rights in Santa Monica, Calif., the state’s top 10 property-insurance and casualty-insurance companies collectively lost a quarter of a billion dollars in what turned out to be the epitome of high-risk roulette: investing in WorldCom, Enron, Adelphia, Global Crossing and Tyco.

Industry representatives tend to downplay the stock market “crime wave” losses, pointing to the pernicious growth of mold claims instead. Perkins, however, said that so far, his office hasn’t been able to isolate mold as a primary cause. “Despite what the insurance companies say, we still don’t have any evidence that mold is a significant loss factor in California,” he said.

Whatever the causes, the facts for ordinary homeowners remain formidable. Last month, Speier’s office introduced a “homeowner’s bill of rights,” a Senate bill that would penalize insurers for recording inquiries as claims and force them to offer all homeowner’s insurance except in extreme circumstances. Also, the California Department of Insurance’s Web site offers simple advice in shopping for a new policy: Shop around, and get your CLUE report.

In the meantime, for those with insurance, we are left contemplating the mysteries of this absurd industry. Since we don’t know what making a claim might mean for our coverage, and because inquiring about the coverage may end up being as damaging as actually filing a claim, it’s tempting to imagine getting a friend to call your insurance company and ask a lot of hypothetical questions.

Unfortunately, insurance companies have armed themselves against this bit of trickery. Because of a fact that makes the workings of Kafka’s castle seem rational and transparent, there’s no way to do hypothetical research about an insurance company’s underwriting policies.

“The rules are secret for underwriting guidelines,” explained Brian Perkins of the state Senate’s Committee on Insurance. “They’re considered a trade secret. If an agent tells you anything about his company’s policies that don’t pertain to your own policy, he’s breaking the law.”

Christensen and Lodato may have been naive about the damage wrought by fully using their coverage but in the end, they would have bumped up against this idiotic paradox anyway.

So, how do you know when to use your insurance and when to stay quiet and pay up?

“There’s no one in the world that can answer that question,” answered Perkins in a low voice.